No cost re-fi question

[TexasErin]

I received a call from my mortgage company tonight asking me if I want to lower our interest rate. My first instinct was NO, but I'm kinda considering it now......

We have a VA loan and refinanced it at the end of February to a 3.75% fixed 30 year. This was switching to a new lender and it was a total PAIN with tons of paperwork. DH and I said NEVER AGAIN.....but......

They called tonight and it would be with the same company so they said they have all of the paperwork. They said it has no costs. I told the gentleman that we need to stop rolling closing costs onto our loan because we'll never get it paid off. He said there's no closing costs because there are no fees. And he said it would only be 20 pages to fill out- versus the mountains of paperwork that we completed in January.

Pros- it would go even lower to a fixed 3.5% rate, which over 30 years would save a lot of money. And no closing costs. We could skip at least one house payment- the man told me to tell our closer that we want to skip two house payments if we would like to do that. That would allow me to pay off a small credit card and a few other small expenses......plus some left to put toward paying off my car, which I would love to do before time to buy DD her first car.

Cons- ????? Other than having my house paid off a couple of months later, I really can't think of any. And we're talking about a difference of having it paid off in 29 1/2 years versus paying it off in 30 years since we just refinanced in February of this year.

I'm NOT wanting to refinance to a 15-year note because DD will be 16 soon and we're looking at adding another car payment and upping our auto insurance, so I hate to commit to a 15-year note right now. When the kids are grown in a few years, we could just send in extra then to get it paid off sooner.

Any reasons that we shouldn't do it?

Thanks,
Erin

 

[Elleshoodat]

I received a call from my mortgage company tonight asking me if I want to lower our interest rate. My first instinct was NO, but I'm kinda considering it now......

We have a VA loan and refinanced it at the end of February to a 3.75% fixed 30 year. This was switching to a new lender and it was a total PAIN with tons of paperwork. DH and I said NEVER AGAIN.....but......

They called tonight and it would be with the same company so they said they have all of the paperwork. They said it has no costs. I told the gentleman that we need to stop rolling closing costs onto our loan because we'll never get it paid off. He said there's no closing costs because there are no fees. And he said it would only be 20 pages to fill out- versus the mountains of paperwork that we completed in January.

Pros- it would go even lower to a fixed 3.5% rate, which over 30 years would save a lot of money. And no closing costs. We could skip at least one house payment- the man told me to tell our closer that we want to skip two house payments if we would like to do that. That would allow me to pay off a small credit card and a few other small expenses......plus some left to put toward paying off my car, which I would love to do before time to buy DD her first car.

Cons- ????? Other than having my house paid off a couple of months later, I really can't think of any. And we're talking about a difference of having it paid off in 29 1/2 years versus paying it off in 30 years since we just refinanced in February of this year.

I'm NOT wanting to refinance to a 15-year note because DD will be 16 soon and we're looking at adding another car payment and upping our auto insurance, so I hate to commit to a 15-year note right now. When the kids are grown in a few years, we could just send in extra then to get it paid off sooner.

Any reasons that we shouldn't do it?

Thanks,
Erin

This sounds awfully suspicious to me. Others may know differently, but I find it odd that a lender is calling YOU offering a refinance at a lower rate, and that they're giving you the OK to skip payments.

We are currently in the process of doing a no-/low-cost streamline refi because we reached out to our mortgage company (and others for comparison); they certainly didn't contact us. And yes, 3.5% is less than 3.75%, but I don't think it will make a significant dent in your monthly payment.

I'm curious to see how this works out for you, though. Good luck!

 

[TexasErin]

Yeah....maybe I should try calling the person that I worked with in the morning....

 

[tink_lover]

I have a close family member who is in the mortgage/refi business. Most people will never see 30 years in one house. You really have to run the numbers. Dh and I are on house #3, so while we have purchased every house thinking this was the one ( and done a 30 year on each one) , now I understand that things have really changed since my parents generation. Look at the numbers very carefully.

 

[navywifetill2002]

We were contacted by our lending agent about a year ago to do a re-fi. It was with the same company and did lower our payment by $20 and took 15 years off the loan but it was not no fee. Since we stayed with the same lender we didn't need all the paperwork or new apraisals but we still had almost $2000 in fees (unless the mortgage company also holds the title they will have to pay them fees). We rolled our fees in but with all the savings (over 2%) it was worth it. Still DH had to take a day off work for the closing and they screwed up 2 things so even a month after closing we were still dealing with it. Personally I would never bother for 0.25%.

 

[powelweb]

What is the bank's angle on this? They are calling you to offer a truly no-cost re-fi that brings your rate down .25% but keeps you in a 30 yr loan. How are they making any money on the deal? Are they charging you points or application fee to process?

We moved to a new home in Sept 2010 and signed a 30 yr mortgage at 4.5% that we have been paying extra principal on every month to bring down the interest costs. Given where rates are, we're looking at re-fi, but we don't want to lock in in 20 or 15 yr term since DD will be in college in 10 years and we plan to re-direct the extra principal to her education at that time.

I found out that our current bank has a mortgage modification program for a flat $750 fee that will allow us to reset the interest rate to 1/8 above their current 30 yr rate but stay within our existing paydown schedule ( so 28 yrs to go) with no other closing costs and no appraisal to worry about. So this will basically cut our interest rate by .75% and effectively put more of the same money we're already paying directly to the principal balance instead of interest costs, and still give us the flexibility for college payments later that we wanted.

I'd say ask this bank point blank how they make their money on that program before you do anything else.

 

[ariel71]

I just did a no-cost refi two weeks ago (pretty substantial rate reduction) that came about by my bank contacting me vs the other way around (they hold my current mortgage). I have very good credit and have no problem with paying my mortgage (which they know because I have most of my money and investments there) so it was a little counter-intuitive to me why they would offer. I was hesitant and asked them the same question about what was in it for them. I'm an accountant and understand the economics, and I couldn't find any hidden factors in their favor when I ran the numbers.

My modification was under the HARP program. One of the bank people, who was probably a little more honest than he should have been, said that the banks are getting flak for not modifying enough loans given all of the bailout assistance they received. They want to be able to say they've modified a certain number/percentage of loans. They'd rather get a little less from a low-risk customer than "100% of nothing" from a high-risk one. And it truly was no-cost; I didn't pay a thing and didn't have to go through an appraisal.

Not sure if it's the same case for the OP (and I'm definitely not saying that I agree with the banking industry as to their approach...). Just offering a potential explanation.

 

[Karenj2]

I don't know if this is still true, but I've always heard that you shouldn't bother dropping the mortgage % unless it's a full percentage less.

If I read your post right, you'd be adding 6 months back onto the loan (8 months if you take two months of not paying). And I *think* that interest accrues during the two months you don't pay, so when you do start paying, you're not paying down the principle at all.

That being said, there's nothing that screams SCAM to me from that deal. We've had folks occasionally call us about refinancing our mortgage, but we only do it if we can drop a full percentage point.

 

[ICF]

I don't know if this is still true, but I've always heard that you shouldn't bother dropping the mortgage % unless it's a full percentage less.

To some extent that's a good measuring stuck, I think it all depends on the closing costs and the like involved.

I still can't believe some of you have to pay 1000's in closing costs. That's just nuts.

I refied in Jan and it costs me $250 for a 20 year / 3.875%

I am getting ready to refi again for another $250 and will now be in a 15 year / 2.875%

 

[sweetdana]

1) if you skip 1 -2 payments you add that on to the principal. When you do a no cost your loan size always goes up.
Do not think they are giving you free $, they are lengthening your term too.

2) there is no such thing as easy doc.. I am an underwriter.. lower doc.. not no doc, that would be the sales person selling you.. You will still be documenting the 85$ you put in of your kids bday money, and writing letters explaining why you never changed your mailing address on you online bank account, or why you have an NSF 3 months ago.

3) If in doing this, you are saving enough to make a difference in your life, or paying off the credit card is something you couldn't do without it.. IT IS worth the cons. ....If you are saving 25$ a month and adding 7 more months to your loan, and won't notice the diff in the budget.. I'd skip it. 1/2 a % is usually worth it on a no cost after about 120K or so (and up) on small loan sizes it is tough to see the diff until you are closer to 1%.

 

[powelweb]

To some extent that's a good measuring stuck, I think it all depends on the closing costs and the like involved.

I still can't believe some of you have to pay 1000's in closing costs. That's just nuts.

I refied in Jan and it costs me $250 for a 20 year / 3.875%

I am getting ready to refi again for another $250 and will now be in a 15 year / 2.875%

Agree these are the 3 key factors to consider- rate, terms and closing costs- then how long are you staying in the home to recoup the closing costs.

On your closing costs, is it really only $250 in total and the difference isn't financed into the mortgage itself? There's a mortgage company in our area that advertises they will do a re-fi for only $500 in closing costs, but when you go through the fine print, you realize the rest of the costs get added to the loan balance and are amortized over 15, 20 or 30 yrs.

Great deal if it is really only the $250 fee. congrats!

 

[ICF]

On your closing costs, is it really only $250 in total and the difference isn't financed into the mortgage itself? There's a mortgage company in our area that advertises they will do a re-fi for only $500 in closing costs, but when you go through the fine print, you realize the rest of the costs get added to the loan balance and are amortized over 15, 20 or 30 yrs.

Great deal if it is really only the $250 fee. congrats!

Yep...it's really $250. This will be my 3rd refi in the last 2 years or so with them. I think in total we've gone from a 30 yr to a 15 and lowered our rate by close to 2%.

 

[Jenny3]

For 1/4 of a point, I personally wouldn't do it.

 

[Shelly F - Ohio]

We just did a refi in April. Our bank had sent us a letter and an email regarding the refi offer. It too was no closing cost. So it sounds like your offer is nothing out of the ordinary.

My suggestion to you would be to run the numbers and see how beneficial it would be to refi. Which is what we did. When you see how much you will be saving over the course of the life time of the loan it will help you to see the benefits.

Here is a good link to use.

http://www.hsh.com/calc-amort.html

First enter your current loan info such as your loan amt, int, ect.
Once you get the amortization info write down the amt of interest you will be paying over the life time of the loan.

Now enter what the new refi rate will be. And again look at the amt shown for the interested paid over the life time of the loan.

Subtract the two interest figures and this is the total amt of interest you will save.
This amt represents money you will be putting back into your pocket not someone elses.
Which mean more Disney money

*** One other thing to remember with the refi is that they will pull another credit report and it can impact your credit score.
*** Plus you need to check your current loan docs to make sure there is not a prepayment penalty clause which could cost you some money.

 

[littleelf]

About 6 months ago we called our credit union to see about refinancing. We were prepared to spend thousands, but figured it would be worth it because rates were so much lower than they were when we bought in 2008. The credit union said they could do it, but they also mentioned a no-fee "loan modification" I believe they called it. Basically they just lowered the rate for us, no fees, no starting over with a new 30-year-term. The rate we got was a little bit higher than it would've been with the full re-fi, but still much lower than the rate we had before.

They also had a "hardship" based option that would've been even lower and still free, but we weren't eligible for that. I thought that the reason they were offering these options was because they are based in an area that has seen a lot of foreclosures, and they'd rather their customers pay them a little less than lose them through foreclosure. What the PP said about wanting to keep good customers also makes sense, though.

I would say go for it.

 

[StregaNona]

My sister has a VA loan and is in the process of refinancing. She is going from a 30-year to a 15-year mortgage and reducing the % by 2.5%. It is a VA streamline loan, but she does have closing costs. I would be skeptical and look into it before making a final decision.

 

[moonpie85]

I just did a no-cost refi two weeks ago (pretty substantial rate reduction) that came about by my bank contacting me vs the other way around (they hold my current mortgage). I have very good credit and have no problem with paying my mortgage (which they know because I have most of my money and investments there) so it was a little counter-intuitive to me why they would offer. I was hesitant and asked them the same question about what was in it for them. I'm an accountant and understand the economics, and I couldn't find any hidden factors in their favor when I ran the numbers.

My modification was under the HARP program. One of the bank people, who was probably a little more honest than he should have been, said that the banks are getting flak for not modifying enough loans given all of the bailout assistance they received. They want to be able to say they've modified a certain number/percentage of loans. They'd rather get a little less from a low-risk customer than "100% of nothing" from a high-risk one. And it truly was no-cost; I didn't pay a thing and didn't have to go through an appraisal.

Not sure if it's the same case for the OP (and I'm definitely not saying that I agree with the banking industry as to their approach...). Just offering a potential explanation.

This. And I can tell you that Wells Fargo is pushing re-fi big time. If they were the ones who contacted you OP, go for it. When we re-fi'd with them a year ago it was painless. There was no cost and it dropped our payments down by $200 a month. On top of that we are saving $77,000 in interest over the life of the loan. This was all due to the HARP program.

 

[heathrow42]

Which companies are offering no fee refi's? Do you have to be an existing customer with them?

Until this thread I thought we had a good rate (refi'd 2 yrs ago) - but after reading a bit here I went and checked our papers, and our rate is >1% higher than what our lender lists on their website for refi. Now I'm wondering if it's worth it to refi again and wondering where all these 'no cost' refi's are?

I also looked all over Nationwide's website - but could not figure out if they charge a flat fee to lower your interest rate as some here have mentioned.

Thanks!

 

[powelweb]

Which companies are offering no fee refi's? Do you have to be an existing customer with them?

Until this thread I thought we had a good rate (refi'd 2 yrs ago) - but after reading a bit here I went and checked our papers, and our rate is >1% higher than what our lender lists on their website for refi. Now I'm wondering if it's worth it to refi again and wondering where all these 'no cost' refi's are?

I also looked all over Nationwide's website - but could not figure out if they charge a flat fee to lower your interest rate as some here have mentioned.

Thanks!

The mortgage modification progam I mentione earlier wasn't posted on our bank's website- I only found out about it when speaking with a loan rep on the phone about refinancing, so you might want to call your bank and specifically ask if they have any special programs for existing customers.

good luck

 

[Mickey Fliers]

If you are doing the VA streamline then you will have to pay the VA funding fee again. However, I believe that it is maybe half a point. The lender will want you to roll that into your new loan. Also, as a previous poster pointed out, those skipped payments will also be added to your loan amount.